Taking the Medicine

Taking the Medicine

As we enter phase two of a double-dip recession everyone is calling for measures to promote growth but governments have no money to do this, says Prof. Pedro Videla. The only way out for countries such as Greece and Spain is to bite the bullet, increase purchase tax, cut spending and create sustainable government expenditure, he says.

The only way to spur growth in European countries that are suffering most is through credible policies of controlling the fiscal deficit, explains IESE Prof. Pedro Videla of the school's Department of Economics. There is no "serious data" that proves that pro-growth spending policies will have a positive effect, he says.

The private sector, along with governments, have radically reduced spending, which is putting the squeeze on national economies. But several EU member states will have to continue to "bite the bullet," says Prof. Videla. Only by slashing debt can countries improve how they are seen by markets, trim their debt over GDP and find the path back to stable growth.